This is the second part of a two-part article on increasing revenue and reducing costs of hospital service lines. In the first part, Marshall Maglothin, principal at Blue Oak Consulting and former cardiovascular service line manager at Cincinnati-based Mercy Health, shared four strategies to increase service line revenue. Here, he offers four strategies to cut costs.
1. Measure cost per case. The first step to reducing costs is determining what current costs are. Hospitals should calculate the cost per case per physician to help identify opportunities for savings. Service line leaders can calculate cost per case by dividing the costs of supplies, labor and other expenses for a particular procedure by the procedure's volume.
To drill down to the physician level, the cost per case can be calculated for each physician separately, as physicians may use different supplies and may spend different amounts of time on the same procedure, which would change the labor cost. If physicians have highly variant costs per case, Mr. Maglothin suggests showing the high-cost physicians the cost their colleagues have for the same procedure to motivate these physicians to change their practices and become more cost-efficient.
2. Reduce cost per case. Hospitals should focus on reducing the cost per case rather than the total cost, as the cost per unit is smaller, and thus more controllable, according to Mr. Maglothin. "If I reduce the total cost, I may not realize how I'm impacting other areas, because it's a complex system," he says.
He says the easiest way to decrease cost per case is to increase volume, because fixed costs — such as the cost of using the facility and the equipment — can be spread over more patients. If service line volume can be increased without hiring new staff, labor costs per case can also be reduced.
3. Review supply utilization. Service line leaders can also reduce costs by periodically reviewing the department's supply use and the associated costs. Hospitals can cut supply costs by standardizing some supplies, such as by reducing the number of vendors hospitals contract with. If physicians and staff can agree on a limited number of vendors, the volume order for each product will increase and can result in discounts.
Another way to reduce supply costs is to review bundled procedure packs to determine if any items can be eliminated. Service lines can also consolidate and share supplies to reduce waste, according to Mr. Maglothin. If two service lines use similar types of procedure packs, they can agree on one brand to increase the volume for one vendor and receive discounts.
4. Train staff. "The most successful way I've ever had reducing cost and increasing volumes has been through staff training," Mr. Maglothin says. Depending on the service line staff's experience, hospitals should train employees one hour each week for three months up to a year to improve employees' problem-solving, communication and teamwork skills. Investing in employee training can create a more efficient service line, which can increase throughput and reduce costs. For example, Mr. Maglothin oversaw a catheterization lab that had a turnover of approximately 20 minutes. After staff training, turnover time was reduced to five minutes. This fifteen minute reduction for each turnover allowed the department to add two more cases each day, which added up to about 500 additional cases a year. "That was only possible because the team had the tools — they flow charted it and redesigned the process," he says.
The flow chart is one of the most valuable tools a service line can provide staff through training, according to Mr. Maglothin. Employees can use a flow chart to separate processes into their components and identify opportunities for improvement. Flow charts also help show employees how different processes are interrelated, which gives a "big picture" view of a problem. Service line employees working in teams to create flow charts and conduct process improvement can have a large impact on the efficiency of the service line.
Mr. Maglothin used a variety of methods to train his service line staff, including videos, worksheets and discussions. He used a roughly 10-minute video to introduce a topic, such as problem solving. He provided staff members with outlines of the video with blank spaces for them to fill in as they watched. After the video, staff members followed an outline of about five discussion topics, including how they could apply the problem solving skill from the video to their own work, using a specific example. Training through different modalities kept staff engaged and helped them immediately apply what they learned to everyday situations.
Click here to read Part I.
5 Key Trends Hospitals Should Know for Cardiology Service Line Success
3 Predictions for the Future of U.S. Healthcare: Retail Models, Population Health & Service Line Acquisitions
1. Measure cost per case. The first step to reducing costs is determining what current costs are. Hospitals should calculate the cost per case per physician to help identify opportunities for savings. Service line leaders can calculate cost per case by dividing the costs of supplies, labor and other expenses for a particular procedure by the procedure's volume.
To drill down to the physician level, the cost per case can be calculated for each physician separately, as physicians may use different supplies and may spend different amounts of time on the same procedure, which would change the labor cost. If physicians have highly variant costs per case, Mr. Maglothin suggests showing the high-cost physicians the cost their colleagues have for the same procedure to motivate these physicians to change their practices and become more cost-efficient.
2. Reduce cost per case. Hospitals should focus on reducing the cost per case rather than the total cost, as the cost per unit is smaller, and thus more controllable, according to Mr. Maglothin. "If I reduce the total cost, I may not realize how I'm impacting other areas, because it's a complex system," he says.
He says the easiest way to decrease cost per case is to increase volume, because fixed costs — such as the cost of using the facility and the equipment — can be spread over more patients. If service line volume can be increased without hiring new staff, labor costs per case can also be reduced.
3. Review supply utilization. Service line leaders can also reduce costs by periodically reviewing the department's supply use and the associated costs. Hospitals can cut supply costs by standardizing some supplies, such as by reducing the number of vendors hospitals contract with. If physicians and staff can agree on a limited number of vendors, the volume order for each product will increase and can result in discounts.
Another way to reduce supply costs is to review bundled procedure packs to determine if any items can be eliminated. Service lines can also consolidate and share supplies to reduce waste, according to Mr. Maglothin. If two service lines use similar types of procedure packs, they can agree on one brand to increase the volume for one vendor and receive discounts.
4. Train staff. "The most successful way I've ever had reducing cost and increasing volumes has been through staff training," Mr. Maglothin says. Depending on the service line staff's experience, hospitals should train employees one hour each week for three months up to a year to improve employees' problem-solving, communication and teamwork skills. Investing in employee training can create a more efficient service line, which can increase throughput and reduce costs. For example, Mr. Maglothin oversaw a catheterization lab that had a turnover of approximately 20 minutes. After staff training, turnover time was reduced to five minutes. This fifteen minute reduction for each turnover allowed the department to add two more cases each day, which added up to about 500 additional cases a year. "That was only possible because the team had the tools — they flow charted it and redesigned the process," he says.
The flow chart is one of the most valuable tools a service line can provide staff through training, according to Mr. Maglothin. Employees can use a flow chart to separate processes into their components and identify opportunities for improvement. Flow charts also help show employees how different processes are interrelated, which gives a "big picture" view of a problem. Service line employees working in teams to create flow charts and conduct process improvement can have a large impact on the efficiency of the service line.
Mr. Maglothin used a variety of methods to train his service line staff, including videos, worksheets and discussions. He used a roughly 10-minute video to introduce a topic, such as problem solving. He provided staff members with outlines of the video with blank spaces for them to fill in as they watched. After the video, staff members followed an outline of about five discussion topics, including how they could apply the problem solving skill from the video to their own work, using a specific example. Training through different modalities kept staff engaged and helped them immediately apply what they learned to everyday situations.
Click here to read Part I.
More Articles on Hospital Service Lines:
8 Strategies to Increase Hospital Service Line Revenue, Reduce Costs: Part I5 Key Trends Hospitals Should Know for Cardiology Service Line Success
3 Predictions for the Future of U.S. Healthcare: Retail Models, Population Health & Service Line Acquisitions